Each of the following situations reveals an internal control weakness.
a. Accounting firms use paraprofessional employees to perform routine tasks. For example, an accounting paraprofessional might prepare routine tax returns for clients. In the firm of Dunham & Lee, Rodney Lee, one of the partners, turns over a significant portion of his high-level accounting work to his paraprofessional staff. (pp. 217–218)
b. In evaluating the internal control over cash payments of Butler Manufacturing, an auditor learns that the purchasing agent is responsible for purchasing diamonds for use in the company’s manufacturing process, approving the invoices for payment, and signing the checks. No supervisor reviews the purchasing agent’s work. (pp. 233–234)
c. Charlotte James owns an architecture firm. James’s staff consists of 12 professional architects, and James manages the office. Often, James’s work requires her to travel to meet with clients. During the past 6 months, James has observed that when she returns from a business trip, the architecture jobs in the office have not progressed satisfactorily. James learns that when she is away, 2 of her senior architects take over office management and neglect their normal duties. One employee could manage the office. (pp. 217–218)
d. B.J. Tanner has been an employee of the City of Marlin for many years. Because the city is small, Tanner performs all accounting duties, plus opening the mail, preparing the bank deposit, and preparing the bank reconciliation. (pp. 217–218)
e. Part of an internal auditor’s job is to evaluate how efficiently the company is running. For example, is the company purchasing inventory from the least expensive supplier? After a particularly bad year, Long Photographic Products eliminates its internal audit department to reduce expenses. (pp. 218–219)
1. Identify the missing internal control characteristic in each situation.
2. Identify each firm’s possible problem.
3. Propose a solution to the problem.
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